SEK undervaluation is coming to an end, economists at CIBC Capital Markets report.
Undervaluation against EUR to reverse
While conventional policy tightening looks set to run its course, once rates reach 4.25%, we expect the central bank to continue to look to limit immediate SEK weakness, in an effort to limit imported price pressures.
Although the SEK remains undervalued its high beta risk status remains a challenge. However, we would expect a more constructive SEK backdrop to encourage EUR/SEK to test 11.00 into mid-2024.
EUR/SEK – Q4 2023: 11.55 | Q1 2024: 11.20
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